Escaping mediocrity: Turkey at an economic and political juncture

Escaping mediocrity: Turkey at an economic and political juncture

Following the failed coup on July 15, there is an urgent need for a political reset that will strengthen democracy, and for a shift to a new economic paradigm. Turkey faces a critical choice: We will either seize the opportunity presented by this horrible attempt to overthrow our democracy and build up an inclusive state and social framework that will be the building block of a true democracy, or we are doomed to mediocrity in every sense. In other words, we will either start doing things differently, or continue the habits of the last 14 years and fall short of our potential. 

Political risks are on the rise. Turkey has been polarized through exceedingly divisive political language and a political governing structure. This polarization is not only a political risk, but has become a very critical social one. Indeed, the social risk of extreme polarization, through its erosive effect on institutional quality, has important implications for the economy. Politically driven social polarization leads to a lack of equal opportunity, where both resources and job posts are distributed based on political loyalties and affiliation rather than merit. In fact, over the years, despite our very public warnings, through an intentional planting of “F-type” individuals – people affiliated with the Gülenist movement – the government has decimated the bureaucracy. Two institutional factors – disregard for the rule of law, and a loyalty-driven public administration – have been the backbone of the crony-capitalist system established by the Justice and Development Party (AKP). 

This economy is best defined as a consumption-driven, construction-based economy. It has reached its structural limits, resulting in several economic vulnerabilities, which are evident in the macroeconomic outcomes. Turkey’s growth rate has plummeted from an annual average of 4.9 percent from 1923-2011, to an annual average of 3.3 percent in the last four years. Not only is the growth rate lower, but it is also unsustainable and exclusive. Official unemployment has been around 10 percent for around a decade, but rises to around 18 percent when discouraged individuals are also included. 

These vulnerabilities are an outcome of Turkey’s deeper structural problems. The main structural issue at the core of these problems is the quality of Turkey’s human capital and institutions, which manifest themselves in what are called “traps,” namely the middle-income trap. One has to underline that being stuck in the middle-income trap is the outcome of Turkey’s structural problems, and is not an exogenous event. An institutional structure that is the backbone of the crony capitalist system alongside the mediocre human capital trap Turkey is stuck in leads to a low value-added production structure, which manifests itself in a “medium-technology trap.” Low value-added production generates an income level that results in Turkey being stuck in the “middle-income trap.” The middle-income trap is evident in the drop in Turkish GDP per capita below 10,000 dollars, a level it has stagnated at since 2008. 

However, not all is lost. Our obvious problems, in a sense, present low-hanging policy fruits. Turkey can get out of all these traps with a four-pillar economic reform agenda which consists of the following: (1) an institutional overhaul to recover from the middle-income trap, (2) a productivity-enhancing reform agenda to recover from the mediocre human capital trap and the medium-technology trap, (3) welfare state reform to eliminate inequalities, (4) a sustainability agenda that ensures a genuine long-term development perspective.
The institutional overhaul must address three main issues; namely, democracy and freedom, establishing the rule of law and finally, redrafting the public procurement law/framework. The primary elements of productivity-enhancing reforms should include education reform, technology reform, and a change in the investment-incentive framework. But unless this reform package is complemented with basic freedoms, democracy, and the rule of law it will not be successful. A true welfare state that is non-partisan and rights-based has to be implemented immediately, reversing the current system that exacerbates the patronage-based system. Finally, the development agenda has to have a forward-looking perspective mindful of the many generations to come, rather than its current short-termism. This would be a sea change in Turkey, one that is much needed. 

Turkey stands at a crossroads. It needs a new problem-solving politics that will allow for the implementation of the aforementioned four-pillar reform agenda. A fresh politics that should be, and could be, immediately formulated. 

*Selin Sayek Böke is the Republican People’s Party’s (CHP) spokesperson and vice chair responsible for economic policy. This is an abridged version of the original published in Turkish Policy Quarterly’s (TPQ) Summer 2016 issue.